Digital Transformation…

The Future of Business & Mastering the New PlayBook

 

by Perry Douglas,

February 25, 2020

At the May 2019 Digital Enterprise Show in Madrid, global consulting firm, McKinsey & Co. McKinsey Global Institute (MGI), presented a report titled, “Twenty-five years of digitization: Ten insights into how to play it right”.  The report’s focus was how countries, sectors, and CEOs face an increasingly complex world where new digital technologies are affecting productivity and performance while causing disruption.  In “this world, the rewards for success—and the penalties for failure—are ever greater.”

This article highlights many of the core themes of the MGI report, the growing digitation of business, and the critical investments and strategies corporations must engage in to stay relevant.  Further, as digital transformation will essentially determine the future winners and losers, how do companies successfully transition to the digital age?

MGI lists 10 key insights from their extensive research on digitization, digital technologies, big data, artificial intelligence (AI) in particular, which all form the core of an entirely new business playbook. Firms that are agile will reach dramatic productivity and profitability levels, while irrelevancy and lag will be the reality for firms that do not. However, digitization has a much broader reach, notably on the future of work and on how it impacts society; it will fundamentally change how society lives, work, and play. Digital culture will change human social behavioural and norms.  

Some of the broader themes in the report MGI includes:

·      An additional $13 trillion could be added to global GDP by 2030 from today through digitization, automation, and AI as these technologies will also create major new business opportunities and productivity gains.

·      “The digital natives are calling the shots” – whereby traditional slow-moving businesses lacking digitization have contributed to significant growth in start-ups are effectively competing with incumbent companies for market share.

·      “Digital changes everything—even industry boundaries” – digital platforms are crucial for developing digital ecosystems, creating diversification beyond sector borders, and provides clear profitability growth. For example, through digitization, Chinese insurer, PingAn, has started many other innovative businesses such as OneConnect. This company develops and sells financial technology solutions in sales, risk management, products, services, and operations around the world. In this case, AI technologies have created new business lines and revenue for the insurer.

·      Agility is the new way to compete – according to MGI, “in virtually all industries that we have analyzed, digital natives are more agile at developing and scaling businesses—than incumbents. In general, digital natives make bolder moves such as owning a platform or allocating more capital expenditure to digital plays in adjacent markets.” The research indicates that simple agility can be a particularly profitable strategy during transformations, particularly when greater uncertainty exists. In short, agile incumbents have higher profits and growth acceleration and margins than those that do not.

·      All about the Platform – 70 percent of companies with a digital platform-strategy achieve higher growth than the average firm that does not. The research shows companies which can create a global business platform produces substantial earnings boost.

·      Professional expertise and effective management of digital transformation is vital – knowledge and specialization is required to implement any digital strategy. Most companies do not staff digital transformation engineers; and using your IT guy to implement complex AI technologies has ended setting companies back, according to the MGI report.  It is imperative to seek out experts in the field of AI and Industrial Engineering who can, first, identify the complex problem, then develop the right digital strategy, create the necessary algorithms, and execute and manage the unique digital ecosystems for growth. Complex data programs require qualified individuals; MGI’s research also indicates increased incidences of failure when companies try to “do-it-in-house.”

·      The first step to digital transformation begins with properly identifying the business problem, first; if not, failure is often baked in right from the start. Identifying mistakes or problems after going live often leads to an ever-mounting collection of errors and unnecessary spending of money.  MGI points out 5 critical points to effectively manage digital transformation correctly. They are (1) advisory, mobilization, which needs shared ownership, accountability, and responsibility, (2-3) clarity of commitment on the digital transformation, and sufficient resources devoted to it as a core organizational priority, (4) the right investment in the technical talent needed in data analytics and digital, with chief analytic and digital officers playing a supervisory role, and (5) anchoring all with agility; if initiatives prove difficult to scale.

Companies need to hit all these aspects to increase their odds of exceeding the intention and ambition of the digital transformation to above 50 percent; doing it in house will dramatically lower the odds of success. In a rapidly evolving digital world where innovation is happening in real-time, is not the time for on-the-job training. For serious business people who want to thrive in the future, hiring the specialists is the winning approach; more importantly, hiring a leading and proven AI, Data Strategy & Complex Programs focused firm, is the advantage.

The Economist article, “Rise of The Machines”, reports that the number 1 subject MBA students are demanding today is AI.  According to Brian Uzzi, who teaches a course on AI to MBAs at The Kellogg School of Business, “AI has become a key tool for businesses in all industries. By harnessing the power of computers to rapidly analyze data, detect patterns and suggest courses of action, businesses are able to work much faster and with fewer overheads”.  It is not surprising AI can be found in the most successful businesses around the world. British supermarkets Tesco and Ocado use machine learning to help improve the routing of delivery drivers and to detect fraudulent transactions. Customer-facing businesses, including Virgin Holidays, use algorithms and big data to tweak marketing messages on the basis of real-time feedback. Uber harnesses machine learning to forecast demand and help direct its drivers ahead of time to customers. It has also used AI to determine the level of price increases individual customers are willing to tolerate.

These occurrences are not surprising as business schools rightly follow where business is headed, not where it has been. “When the professor began incorporating AI into his research a decade ago, all but a handful of the 3,000 students he taught knew what AI was. Now, almost all do.” For years IBM has been using AI to help doctors diagnose patients quicker and with more accuracy; similarly, in business, AI helps executives make better fact-based decisions.  AI technology has simply become an indispensable business tool used to gain a meaningful competitive advantage. Those destined to lead these firms will not be writing the algorithms themselves, they will be hiring engineers to do that; however, they will need to clearly understand it in order to be effective managers. And of course, MBAs are looking to create the next big, disruptive company. “You’ve got to remember MBAs are driven by role models,” states Mr. Uzzi. “Jeff Bezos is now the richest person in the world and he’s been pretty much able to do that thanks to advances in AI."

“The next wave of digitization is coming through new frontier technologies including general ledger technologies like blockchain, automation, and a large set of smart, artificial-intelligence (AI)-based technologies.” China has already attracted 50 percent of global investment in AI start-ups according to CB Insights, ahead of the US and Europe. Both also lag behind in specific domains like advance neuronal algorithms, and voice and video recognition tools.

The evidence further suggests that companies that are early adopters to AI/Industrial Engineering have experienced strong profit growth. Effectively, AI is the specific technology that directly correlates to higher financial performance, underpinning the firm’s ability to boost and accelerate its digital performance.  According to MGI analysis, professional services and retail companies, for example, which do not deploy AI are reporting cash flows that are 15 to 20 percent lower than their AI-embracing peers. In financial services, the gap is 30 percent, and in high-tech, a substantial 80 percent. These figures demonstrate not only is the gap between the performance of nonadopters and adopters a large one, but more significant in sectors that are more digitized and globalized.  The analysis by MGI of several hundred AI use cases provides evidence of widespread benefits to operations and profitability from AI and Industrial Engineering adoption.  

Today AI has become a big buzzword, however, most business people do not really understand its proper beneficial application. Understanding the Applied Intelligence to effectively using AI is key; having a high-powered tool is useless, even dangerous if you do not know how to properly apply it. The journey to digitization started a quarter of a century ago; today it is ever-present. Standing still and waiting to “see what happens” is not a business strategy. Based on the evidence, investing prudently in advance technologies creates significant long-term value for the enterprise; nevertheless, it does require highly skilled specialists to lead the way.

DouglasBlackwell applies the scientific method and computational power to solve complex problems faced by organizations around the world. Industry leaders, engineers, scientists, and post-graduate (PhD) scholars come together to form DouglasBlackwell. With 75 cumulative years of experience within global-tech companies and investment banks, the management team has successfully created billions of dollars in value for their clients and investors. Making decisions amidst ambiguity, Industrial Engineering, Data Science and AI has been the key focus areas of these trailblazers. The team continues to find opportunities to help businesses transform in this digital age.   

DouglasBlackwell

Applied Intelligence

www.douglasblackwell.ai